Want to know why power stocks in India are going up? Read this blog to know more! Find out how power stocks are affected by factors like supply and demand and understand if you should buy power stocks for your portfolio.
The Nifty Energy Index hit an all-time high on 05-10-2021 while the BSE Power Index reached levels that were only last seen in 2010. This surge has, in part, been due to the strong performance of power stocks in India.
Energy companies like Power Grid Corporation of India (ticker: POWERGRID) and Tata Power (ticker: Tata Power) have seen their stock grow significantly over the past two months.
Furthermore, India consumed its largest share of energy ever recorded in FY 2021 that was approximately 190 GW. An increase in energy consumption is thought to be a sign of a thriving economy.
After all, everyone from your local kachori walah to your neighborhood Starbucks requires power in some form. That said, is energy consumption alone enough for power stocks in India to blast off?
Power stocks in India are known to gain or lose value due to various factors that primarily depend on supply and demand.
The Indian economy is steadily opening up in phases thanks to a high vaccination rate. The immediate impact of this is the rise in demand for energy from businesses restarting their operations.
That’s not all. Cities opening up also means that migration from rural to urban destinations is slowly picking up steam along with reports of a year on year uptick of 131% in domestic air travel in August 2021.
Furthermore, power consumption in India between 04-2021 and 09-2021 has increased by more than 12% year on year while ICRA has updated the growth of energy demand for 2021-22 from 8% to 8.5%.
All these situations occurring together has led to a surge in the demand for energy. However, there’s a lack of supply of energy to meet the growing demand.
A quick throwback to your economics textbook would suggest that more demand and less supply leads to a rise in commodity prices, which would explain the soaring price of power stocks in India.
China and Europe are currently experiencing a severe crunch in energy supply due to different reasons. China is cracking down on organizations with a heavy carbon footprint.
However, China’s primary source of energy is coal whose supply it doesn’t have in enough quantities to meet the demand. China would obviously want to import droves of coal, but European countries have other ideas.
France and Spain, in particular, have seen incredible economic pressure due to surging gas prices. As a result, both China and several European countries have issued directives to import energy at all costs.
Thus, one of the answers to why power stocks are going up is the international energy crisis that’s playing a major role in driving up commodity prices of coal, oil, gas, electricity, and others.
The proposed Electricity Amendment Bill looks to level the playing field by opening the door for private companies to enter the foray. But more than that, it will allegedly allow citizens to choose their power service providers.
Power stocks have thus been in the news and could be affected by the outcome of the proposed Electricity Amendment Bill 2021. It is, however, facing opposition even before being formally introduced in the parliament.
OPEC+ countries recently decided to stick to the original (minor) hike in supplying 400,000 barrels per day instead of ramping up their supply to meet the surging demand.
This has caused a sharp rise in the price of crude oil. Brent Crude Oil hit $82 per barrel briefly on 04-10-2021, its highest value since 2018, before settling below $81.20. Brent is the global benchmark for crude oil.
Naturally, companies that deal in crude oil like Oil & Natural Gas Corporation Limited (ticker: ONGC) have seen a relatively sharp uptick in their stock price.
The surging value of power stocks in India is potentially a double-edged sword for investors. On one hand, investing in solid power stocks in India may lead to lucrative returns until the supply issues are sorted out.
On the other hand, there may be consequences in the daily life of investors. For example, power cuts, because energy companies may not be able to fulfil the demand that’s been generated by Indian consumers.
Furthermore, India gets more than 3/4ths of its coal from Coal India who is experiencing supply chain bottlenecks and dwindling production due to unexpected rainfall in coal mining areas.
All these factors tied together may have broader implications for power stocks in India in the future. But for now, the lopsidedness in supply-demand is primarily why power stocks in India are going up.
That said, certain energy companies like ONGC and Tata Power were performing well even before factors like the energy crisis and Electricity Amendment Bill 2021 came into the picture.
Broadly speaking, you can invest in the best power stocks in India in two ways. The first way is direct - buying power stocks yourself. The second way is through top mutual funds that have exposure to power stocks.
Indian investors can buy power stocks on their own using a brokerage account. However, it’s best to consult a trained financial advisor before putting your hard-earned money in a volatile sector like power.
Power stocks are known to be held by top mutual funds like the ones on Cube. Here’s a snapshot of these top mutual funds in India handpicked by Cube’s advisor Wealth First.
Note: Facts & figures are true as of 05-10-2021. All information mentioned is for educational purposes and relies on publicly available information. None of the information shared here is to be construed as investment advice. We strongly recommend you consult a Cube Wealth coach before investing your money in any stock, mutual fund. PMS or alternative asset.
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